The Plot Thickens – Price Waterhouse India Plausibly CulpableBy Francine • Apr 19th, 2009 • Category: Latest, Pure Content
“knowingly certified the inflated and forged balance sheets prepared based on forged FDRs and other data..”
The CBI chargesheet says that both the auditors after facilitating projection of falsified data made “misleading” presentations to the audit committee of Satyam about the financial health of the company.”
This finding was a surprise to Price Waterhouse, according to press reports, since firm leadership supposedly thought that the statement of the Satyam CFO, clearing the auditors of involvement, would be enough to get them out of jail. Obviously they do not watch Law and Order: Criminal Intent. When a guilty party makes a statement, it lacks credibility and often has an ulterior motive. The Price Waterhouse partners are still in jail.
As with many other examples of “alleged” negligence and complicity by auditors, such as in the recent lawsuit against KPMG in the New Century case, there are often others both in the company and in the firm who tried to tell the audit partners that there was a problem, only to be ignored. The partners in both Price Waterhouse re: Satyam and KPMG re: New Century allegedly deliberately ignored their own experts in order to please their clients and, therefore, continue to receive the millions of dollars of fees for the certification of financial statements that proved to be worthless to investors and regulators.
“…these two auditors ignored the findings of even their internal checking team. The Head of Information Systems Audit of Price Waterhouse in the course of an ‘information technology general check’ found a staggering 180 deficiencies. This was communicated to the audit team who were told that the IT systems in existence in Satyam were “not fully integrated and subject to manipulation,” the chargesheet says.Gopalakrishnan and Talluri were told that “in the light of the above deficiencies substantial and elaborate examinations of the financials should be conducted.” But the two at different points of time did not make any change in their audit plans.”
“PricewaterhouseCoopers is overhauling its operations in India two months after starting an investigation into fraud at one of its Indian clients.
The auditor, which has nine offices and thousands of clients in India, said Thursday that it would make sweeping changes to “re-emphasize quality.” They include adding a five-member advisory board in India, appointing a new head of risk management from outside India to oversee work in the country and a new auditing team in India, and changing the management in its office in Hyderabad.”
“The crisis has forced PwC to take a closer look at its global processes and procedures to make critical changes, wherever necessary. “For our clients, stakeholders, regulators and to protect our integrity, we have done an extensive review of our processes globally. We are looking at our own standards to see if there need to be some changes. We are not taking this lightly,” said DiPiazza. The changes, which are in the process of being implemented, include review of audits, training of partners, periodic rotation of partners, among other things. On the Satyam scam, DiPiazza said: “What we understand is that this was a massive fraud conducted by the (then) management, and we are as much a victim as anyone. Our partners were clearly misled.”
While the firm has little control over the case, it is trying to salvage the situation by instilling confidence among its clients and demonstrating its commitment to the highest standards.”
“Accountancy firm Pricewaterhousecoopers (PwC) will bring in partners from abroad to audit Indian clients after its image was tarnished by the Satyam swindle, a report said Wednesday.
PwC said it was acting after its audit arm Pricewaterhouse signed off on Satyam Computer Services’ accounts, which were later found to have been falsified for years.
“We want to convince our stakeholders that the processes at PwC are of the highest quality,” global chief executive Samuel DiPiazza was quoted by The Economic Times as saying…
The partners who will independently audit PwC’s clients in India will be brought in from its international affiliates in a move to preserve PwC’s position in the fast-growing and competitive Indian market, the newspaper said.”
It seems that Mr. Di Piazza, the Chairman of PricewaterhouseCoopers International Limited, has quite a bit more control and influence over the Indian firm, even though,
“PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.”
All the work Di Piazza is doing to fix the problems in India actually negates their long-held contention and previously handy and convenient legal defense:The global firms don’t have control over the operations of their “member firms” worldwide.
Which is it, Mr. Di Piazza?
The lawsuits, pending now and to be filed, will most assuredly accuse the International umbrella firm of negligence in the same way that the Deloitte Parmalat suit filed by Stuart Grant, the KPMG New Century case filed by Steven Thomas, and the pending case against BDO International, also by Mr. Thomas, have done, which is to say essentially that,
“KPMGI specifically represented that it would ensure that member firms’ work, including their audits, would meet professional standards and regulatory requirements: “[KPMGI] has established policies and procedures to which member firms must adhere to help ensure that the work performed by member firm personnel meets the professional standards, regulatory requirements and the member firm’s quality requirements applicable to their respective Audit, Tax or Advisory services engagements.” Via these policies and procedures, KPMGI promised the public it would “maintain the quality and integrity of the accounting profession [that] is vital to the confidence in our global capital markets.”
KPMGI’s expansive rights of control ensure “globally consistent services” and include the most fundamental right — the right to take away the “KPMG” brand and put member firms out of business. According to KPMGI’s annual report, membership with KPMG can be terminated if a firm acts “contrary to the objectives of the KPMGI cooperative” or KPMGI’s policies and regulations. KPMGI thus can fire KPMG LLP at any time.
KPMGI also promised the public “globally consistent training for all auditors within KPMG member firms” and enforced its quality requirements through “an established set of supervisory, review and consultation standards supported by leading technology.” “
It may be, and I would bet, that Mr. Di Paizza’s decision to retire six months early from the International firm Chairmanship of PWCIL is because he expects to be named individually in the suits against PWCIL, as Mr. Copeland, Former Deloitte CEO, is in the Deloitte Parmalat suits. In that case, it’s best for him to have the time and the firm’s money available, free and clear of any leadership responsibilities, to defend himself.